EC251 02 Overview of Economics — Transcript

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1. 0:00hello everyone and welcome to the first
2. 0:04lecture video of the semester the first
3. 0:06time that we talk about
4. 0:08the material covered in your textbook
5. 0:10and elsewhere in this case it will be
6. 0:12just textbook for the first week which
7. 0:14is also the introductory week
8. 0:16we have chapter one 1.1 to 1.3
9. 0:20i'm in other words we're not doing 1.4
10. 0:23just yet
11. 0:24the section on economic systems i'm
12. 0:26leaving that for the second week because
13. 0:28i would like to discuss that in a lot
14. 0:30more detail
15. 0:30than as discussed in your textbook right
16. 0:33now
17. 0:33we're dealing with introductions to
18. 0:36economics to scarcity
19. 0:38and to the concept of models now you're
20. 0:41taking an economics course
21. 0:42specifically a macro economics course
22. 0:45for many of you this might be the first
23. 0:47economics course that you've ever taken
24. 0:48for others
25. 0:49it may not be and this may be the first
26. 0:52textbook
27. 0:53that you've ever read on economics or it
28. 0:55may not be
29. 0:56now if we were doing a classroom
30. 1:00regular classroom discussion if we were
31. 1:03living in
32. 1:04ordinary times and not in interesting
33. 1:06times
34. 1:07then i would at this point ask you to
35. 1:10tell me
36. 1:10what the definition of economics is or
37. 1:13what you think economics is and there
38. 1:15will be different answers some
39. 1:16would remember the definition from the
40. 1:18textbook others would give other
41. 1:19definitions
42. 1:21and the thing about that is although our
43. 1:22textbook does give a definition of
44. 1:24course it says that
45. 1:25economics is the study of how humans
46. 1:27make choices in the face of
47. 1:29scarcity that's not the definition that
48. 1:32is given by other textbooks
49. 1:33if you've read other textbooks you'll
50. 1:35notice that they each tend to define
51. 1:37economics in a different way
52. 1:39and that's because there isn't a single
53. 1:41consensus definition of economics
54. 1:44like with many other social sciences and
55. 1:47humanities and sometimes
56. 1:48even hard sciences everybody knows kind
57. 1:51of what economics does
58. 1:54but different economists have different
59. 1:56ideas of exactly what the formal
60. 1:58definition would be so if i asked you if
61. 2:00you were in a class right now
62. 2:01and i asked you what the definition of
63. 2:03economics was and different people gave
64. 2:05me different answers
65. 2:06they could all be correct
66. 2:09so economics is according to our
67. 2:11textbook the study of how humans make
68. 2:13choices in the face of scarcity let's
69. 2:15take a step back
70. 2:16before we even touch upon scarcity and
71. 2:20discuss another aspect economics is
72. 2:22first of all
73. 2:23the study of it's a social science
74. 2:30what does that mean well let me put it
75. 2:34this way
76. 2:36sometimes when i ask what economics is
77. 2:39i get the answer that economics is the
78. 2:42study of money or how people use money
79. 2:44or the study of supply and demand or
80. 2:46maybe even the study of
81. 2:48businesses and consumers all of those
82. 2:51things
83. 2:52are indeed things that economics deals
84. 2:54with
85. 2:55but it deals with a lot more and you can
86. 2:57actually have economics
87. 2:59uh you can study the choices that people
88. 3:01make in the face of scarcity
89. 3:02even in a world with no money even in a
90. 3:04world with no businesses no private
91. 3:06businesses
92. 3:07you could study the economics of a group
93. 3:10of 10 people stranded
94. 3:12on an island again without money
95. 3:15no businesses without contracts so
96. 3:18economics is a social science economics
97. 3:21is about human behavior economics is one
98. 3:24of several
99. 3:25disciplines that studies human behavior
100. 3:28it is ultimately about how people
101. 3:30interact with each other
102. 3:34not about any specific way any specific
103. 3:36thing like
104. 3:37like money although that can be part of
105. 3:40it
106. 3:41now what this means is that economics is
107. 3:44not like the
108. 3:45hard sciences it's not like physics for
109. 3:47example where
110. 3:49you know for every question you will
111. 3:51always
112. 3:52have a correct answer now you may not
113. 3:54know what the correct answer is
114. 3:56and perhaps nobody knows perhaps we're
115. 3:59trying to discover that
116. 4:01right now through experimentation but
117. 4:03there is a correct answer you know
118. 4:04if you launch a rock up in the air at a
119. 4:07certain angle with a certain initial
120. 4:09velocity then depending on atmospheric
121. 4:11conditions
122. 4:11it will land in a certain place
123. 4:15but with social sciences we're not
124. 4:16dealing with rocks or even planets
125. 4:20or even you know other complex but
126. 4:23deterministic systems we are
127. 4:24dealing with humans we're dealing with
128. 4:28people
129. 4:28and people are complicated i mean other
130. 4:31things are complicated too planets are
131. 4:32complicated
132. 4:33um chemistry can be complicated but
133. 4:36people are complicated in a
134. 4:37fundamentally unpredictable way
135. 4:40so with social sciences including but
136. 4:42not limited to economics
137. 4:44oftentimes there isn't a single correct
138. 4:46answer to a question
139. 4:48not because we haven't studied it enough
140. 4:50or because some
141. 4:52people are insisting on the wrong answer
142. 4:54that they think is correct but simply
143. 4:55because we are dealing with
144. 4:57a study of human interaction a study of
145. 4:59society a study of
146. 5:00of people and when you study people
147. 5:04sometimes it's just very hard to
148. 5:06determine how they will act
149. 5:09predictions can easily be wrong it's
150. 5:12really hard to run experiments you can't
151. 5:14run i mean there is such a thing as
152. 5:16experiment experimental economics
153. 5:19but it's not like an experiment in
154. 5:20physics
155. 5:23the same people in the same
156. 5:24circumstances with the same conditions
157. 5:27can act differently on different days
158. 5:28depending on what's going on in their
159. 5:30lives
160. 5:31uh so economics is a fuzzy science it's
161. 5:33a social science it's a study of human
162. 5:35behavior
163. 5:35and because it's a study of human
164. 5:37behavior there's a certain element of
165. 5:38uncertainty there's a certainly way
166. 5:41there are different approaches to
167. 5:43economics there are different schools of
168. 5:44thought
169. 5:46and hopefully i'll be able to touch upon
170. 5:49that a little bit
171. 5:49next week okay so economics is a science
172. 5:52but it's a social science it's about
173. 5:53human behavior
174. 5:54like psychology like sociology and in
175. 5:58like in those sciences there are
176. 5:59different schools of thoughts and
177. 6:00economics uh different ways to approach
178. 6:03the question of well how do people act
179. 6:06now economics of course is not the study
180. 6:08of all human behavior
181. 6:12no it is the study of human behavior in
182. 6:14the face
183. 6:15of scarcity
184. 6:18and how humans other individuals either
185. 6:21individuals or groups
186. 6:23deal with this thing called scarcity
187. 6:29that's really it so economics is not the
188. 6:31study of
189. 6:33human relationships like romantic
190. 6:35relationships
191. 6:36except and so insofar as they affect
192. 6:38people's behaviors with regard to
193. 6:40scarcity
194. 6:41just to give an example those
195. 6:42relationships would be studied by
196. 6:44psychology or perhaps even sociology
197. 6:46but not by economics
198. 6:50so scarcity what is scarcity well
199. 6:53it's um it is in itself a concept that
200. 6:56has
201. 6:57different definitions but basically it
202. 6:59refers to the idea that
203. 7:02we can't have we can't give everyone
204. 7:06everything that they want we can't have
205. 7:09everything
206. 7:09for everyone at least not right now it
207. 7:13is worth
208. 7:13thinking of what it would look like if
209. 7:16we could have that it is worth thinking
210. 7:18what
211. 7:18a non-scarcity or postcardst society
212. 7:21would look like
213. 7:22sometimes the best way to understand the
214. 7:24concept the best way to understand
215. 7:26scarcity is to think about what it would
216. 7:28be like if we didn't have it
217. 7:29sometimes the best way to understand the
218. 7:30concept is to think of what its
219. 7:32absence looks like so scarcity means
220. 7:37that we don't have enough resources we
221. 7:39don't have the ability to give everyone
222. 7:40what they need or
223. 7:41or at least everything or at least we
224. 7:43can't give everyone what they want
225. 7:44we may actually be able to give everyone
226. 7:46what they need but not
227. 7:48what they want what would what would it
228. 7:51look like if
229. 7:51that wasn't the case well for those of
230. 7:53you who are science fiction fans like me
231. 7:57in star trek there is a concept called
232. 7:59replicators
233. 8:00specifically universal replicators these
234. 8:03are these devices
235. 8:04uh we never really see them but
236. 8:06presumably they look like giant boxes
237. 8:08that can materialize any object
238. 8:12they can make you know they can make any
239. 8:13object appear they can give you a cup of
240. 8:16hot or gray tea if you want it or
241. 8:18presumably
242. 8:19a laptop computer or a motorcycle
243. 8:22or even a spaceship you know for for
244. 8:25industrial
245. 8:26replicators perhaps if we had such
246. 8:29devices
247. 8:30like magical 3d printers that could just
248. 8:33create
249. 8:34any object from scratch given enough
250. 8:37power i mean presumably they're powered
251. 8:38by something maybe electricity or
252. 8:40something else but the idea is they can
253. 8:41create any object
254. 8:42if we had such devices that could just
255. 8:44create any object in any quantities
256. 8:46and we had enough energy to power them
257. 8:49and we made them widely available so
258. 8:51that any human being could use them
259. 8:53then well then we would perhaps have
260. 8:58a society with no scarcity it depends a
261. 9:01bit on how you define scarcity here
262. 9:02because
263. 9:03even if we had universal replicators
264. 9:06not everyone could have
265. 9:09um let's say a vacation
266. 9:13to the bahamas that's not an object that
267. 9:16you can
268. 9:17create even if you had a magical 3d
269. 9:20printer to create any object a vacation
270. 9:22is not an object
271. 9:23so there would be some things
272. 9:27that would still be subject to scarcity
273. 9:29that not everyone could
274. 9:30have but most things would no longer be
275. 9:34subject to scarcity presumably not even
276. 9:35the results of
277. 9:37services like you know dining in a
278. 9:40restaurant is a service
279. 9:41but the replicator could presumably
280. 9:43replicate a restaurant dinner
281. 9:45for you so
282. 9:48scar city exists because it is not
283. 9:51possible at least it's not possible
284. 9:53right now
285. 9:53for everyone or humans to have
286. 9:56everything
287. 9:57that they want there is a possibility
288. 10:00that in the future technology could
289. 10:02either completely eliminate scarcity or
290. 10:04depending on how you define it perhaps
291. 10:06not completely eliminated but
292. 10:07certainly reduce it to only certain
293. 10:09things if
294. 10:11we could have any physical object anyone
295. 10:13wants then
296. 10:14that would reduce scarcity to some
297. 10:17intangible concepts like
298. 10:18or intangible things like vacations or
299. 10:21experiences
300. 10:23and that would greatly reduce the scope
301. 10:24of economics in a world with no scarcity
302. 10:27or in a world where scarcity only
303. 10:28applies to
304. 10:29you know really silly unnecessary things
305. 10:32that you can
306. 10:33have or not have and it's fine like
307. 10:35vacations in a world where
308. 10:36scarcity only applies to that there is
309. 10:38no need for economics
310. 10:40we need economics because we live in a
311. 10:42world of scarcity
312. 10:46and because we live in a world of
313. 10:48scarcity we have to make decisions
314. 10:51about who gets what because remember
315. 10:53it's not possible for everyone to have
316. 10:55everything that they want so that means
317. 10:57some people are not going to get what
318. 10:59they want and
319. 11:00also in the present day society that we
320. 11:02have and in all historical societies
321. 11:04some people are not going to get
322. 11:06everything that they need either
323. 11:08which may be a problem but that is how
324. 11:11economics has worked so far so
325. 11:13we have to make decisions about who gets
326. 11:15what and also about
327. 11:16what gets produced in the first place
328. 11:18there might be some things that people
329. 11:20don't get because they were never made
330. 11:22okay so because of scarcity we have to
331. 11:25make decisions about production and
332. 11:26distribution
333. 11:42in fact
334. 11:45some textbooks some textbooks will
335. 11:48define economics as the study
336. 11:50of the production and distribution of
337. 11:52goods and services
338. 11:54rather than saying it's the study of
339. 11:57choice how humans make choices in in the
340. 12:00face of scarcity
341. 12:01it's still the same science it's still
342. 12:02the same field
343. 12:04of study but it's just a different way
344. 12:06of looking at it so because
345. 12:07scarcity exists we have to make
346. 12:09decisions about what we're going to make
347. 12:12what goods and services will exist
348. 12:15and also how they're going to be
349. 12:16distributed who gets
350. 12:18what
351. 12:22now another thing about economics is
352. 12:23that things look different
353. 12:25depending on whether you're looking at
354. 12:26them from the perspective of a single
355. 12:28individual
356. 12:29or a single organization a single
357. 12:32business perhaps
358. 12:33or from the perspective of the whole
359. 12:35society
360. 12:36let me explain this using the thing that
361. 12:38is the first thing that people think of
362. 12:40when
363. 12:41we mention economics money so this this
364. 12:44thing
365. 12:44money is it more like gas for a car
366. 12:48or is it more like the blood in your
367. 12:50body that's a weird question
368. 12:52let me explain think of it from an
369. 12:55individual perspective think of it from
370. 12:57you know your perspective money is
371. 13:00something that you try to get
372. 13:02through employment by providing your
373. 13:05labor
374. 13:06uh to other people or to other
375. 13:07organizations in exchange for getting
376. 13:09paid
377. 13:10so it's something that you try to get
378. 13:11something you try to obtain as income
379. 13:13and there's also something that you need
380. 13:14to spend something that you need to
381. 13:17consume in order to get stuff that you
382. 13:19need
383. 13:20something that you need to to give in
384. 13:22exchange for goods and services that you
385. 13:24need or that you or that you want so
386. 13:27it's like a resource
387. 13:28it's a gas in your car in a sense it's
388. 13:31something that you get
389. 13:32and something that you spend that is
390. 13:35money from an individual perspective
391. 13:38you can get more of it and that's good
392. 13:40good having more of it is a good thing
393. 13:42because then you can spend more of it or
394. 13:44save more of it okay
395. 13:46now think of it from the perspective of
396. 13:47a whole society on the other hand from
397. 13:49the perspective of the entire united
398. 13:50states or any other country
399. 13:52money then is not really something that
400. 13:54you get
401. 13:56a country doesn't try to earn money
402. 13:59by doing stuff for other countries
403. 14:03money is something that circulates in
404. 14:05the economy
405. 14:06like blood circulating inside a human
406. 14:09body this is where that weird analogy
407. 14:11comes in
408. 14:12so from the perspective of a whole
409. 14:14society of a whole economy of a whole
410. 14:15country
411. 14:16money isn't something that you get and
412. 14:18something that you spend money is just
413. 14:19there inside of you inside the society
414. 14:21it circulates around
415. 14:23like the blood inside the body and it
416. 14:26transports things around it makes goods
417. 14:28and services move around
418. 14:30it causes things to be produced like
419. 14:32blood that transports nutrients and
420. 14:34oxygen to the organs of your body
421. 14:36so depending on whether you're looking
422. 14:37at it from the perspective of an
423. 14:38individual
424. 14:39or of a whole society money looks very
425. 14:42different it's either something that you
426. 14:44obtain and spend
427. 14:47or it's something that just circulates
428. 14:48moves around and around and around
429. 14:50around then it makes the the whole
430. 14:52system operate
431. 14:55that is the difference between
432. 14:57microeconomics and macroeconomics
433. 15:13of course this course
434. 15:17is about macroeconomics so that's what
435. 15:19we'll be studying
436. 15:21macroeconomics is the big picture side
437. 15:24of it
438. 15:25macroeconomics is the site that treats
439. 15:27money more at blood
440. 15:28than like gas macroeconomics is
441. 15:31uh the study of entire economies
442. 15:35of how societies operate of how
443. 15:37countries operate and also the study of
444. 15:39government
445. 15:40policy that's macro that's discourse
446. 15:45other courses microeconomics
447. 15:48sorry microeconomics in which there are
448. 15:50other courses
449. 15:52that studies the choices and actions of
450. 15:56individuals
451. 15:57and businesses and other organizations
452. 15:59sure no non
453. 16:00non-profits etc so that is the site that
454. 16:04treats money more like
455. 16:05yes um and that looks at
456. 16:09you know separate decisions by separate
457. 16:10actors in the economy
458. 16:13now in our study of macroeconomics
459. 16:16we will be using soon enough something
460. 16:19called
461. 16:19models now the textbook explains both
462. 16:22models and theories there's actually a
463. 16:24difference between theory and model
464. 16:26but for the purpose of this course we
465. 16:28don't need to worry about that so
466. 16:30i'll be using the words theory and model
467. 16:33interchangeably as if they meant the
468. 16:34same thing they're close enough for our
469. 16:36purposes
470. 16:38what is a model well first of all a
471. 16:41model is
472. 16:42wrong well what do i mean by that well
473. 16:45let me put it this way
474. 16:46now the textbook gives as an example an
475. 16:49actual economic model the circular fuel
476. 16:52diagram
477. 16:52and that is good and you should read it
478. 16:54it's important but i'll start with
479. 16:56something a little bit sillier
480. 17:06now believe it or not that is a model
481. 17:09specifically that's a model of a
482. 17:11human face smiling you see what i mean
483. 17:14a model is wrong this is not uh
484. 17:17actually a human face this is like three
485. 17:19circles and a curved line
486. 17:22it really if you if you look at it
487. 17:24objectively it's nothing like a human
488. 17:26face it doesn't even have a nose it
489. 17:27doesn't have ears
490. 17:29it doesn't have any other facial
491. 17:30features
492. 17:32and yet you know that it's supposed to
493. 17:35represent
494. 17:36a human face and that's specifically
495. 17:38it's supposed to represent the human
496. 17:39face that's
497. 17:40smiling so a model is a
498. 17:44simplified picture of something it's
499. 17:46sometimes very simplified
500. 17:47just like this is a very very simplified
501. 17:50and
502. 17:51inaccurate representation of a human
503. 17:53face so a model is a very very
504. 17:55simplified and
505. 17:56always inaccurate representation of
506. 17:58something that's going on in the world
507. 18:00like a model of the economy the circular
508. 18:02flow diagram in your textbook
509. 18:04is a very simplified representation of
510. 18:06an entire country's
511. 18:07economy but despite the fact that models
512. 18:11are wrong in the sense that they miss
513. 18:13things you know
514. 18:14they don't have all the features that
515. 18:16the real thing has
516. 18:17they are helpful or they can be helpful
517. 18:19a good model is helpful a bad model is
518. 18:22unhelpful a model can be helpful in that
519. 18:25it
520. 18:26helps us illuminate something about the
521. 18:30object that it's a model of in this case
522. 18:32this thing is telling us that whoever
523. 18:34this person is is
524. 18:35smiling if i try to put all the other
525. 18:39bells and whistles if i try to make this
526. 18:41a realistic drawing of someone which i
527. 18:43actually can't do because i can't really
528. 18:45draw
529. 18:45but if i if i try to make this a
530. 18:47realistic drawing of someone then you
531. 18:48might get distracted by some of the
532. 18:50other things you might get distracted by
533. 18:53the the person's hair or the direction
534. 18:55they're looking on
535. 18:57the direction they're looking in and you
536. 18:58might not even notice that they're
537. 18:59smiling
538. 19:00especially if it's a solo smile you
539. 19:02might not know this
540. 19:03because you're looking at other parts of
541. 19:05their face this
542. 19:06this tells you that the person is
543. 19:07definitely smiling
544. 19:10so this would be a good model of a human
545. 19:12face
546. 19:13if what we're interested in is
547. 19:14determining whether this person is
548. 19:16smiling or not that's how it works with
549. 19:20economic models
550. 19:21too all models in fact not just economic
551. 19:24ones
552. 19:24always leave stuff out they don't show
553. 19:27us the entire
554. 19:28detail of the thing that they represent
555. 19:30they can't if you were
556. 19:32to try to have a model that throws in
557. 19:34all the details that's called a kitchen
558. 19:36sink model where you throw in everything
559. 19:37in the kitchen
560. 19:38sink if you try to have that kind of
561. 19:41model
562. 19:42it's very difficult to see things in it
563. 19:44it makes it difficult to figure out
564. 19:45what's going on because there's so much
565. 19:46stuff
566. 19:47going on a good model will simplify
567. 19:50things
568. 19:50so that it removes everything you're not
569. 19:52interested in
570. 19:54it leaves only the part that you want to
571. 19:56look at in this case
572. 19:57the smile and
573. 20:00it helps you analyze that part you know
574. 20:03if this is a model of a human face then
575. 20:05look that one is smiling and this one is
576. 20:08not smiling huh
577. 20:09yes the model enables us to tell whether
578. 20:11these people are smiling or not
579. 20:13doesn't let us know anything else about
580. 20:14them but if our purpose is to know
581. 20:16whether the person smiling or not
582. 20:18this is a good model if our purpose is
583. 20:20something else
584. 20:22like to tell who the person is for
585. 20:24example then this would be a terrible
586. 20:25model this will not let you know who
587. 20:27the person is
588. 20:30so it works with economic models as well
589. 20:33the same model can be good or bad
590. 20:34depending on what you're trying to do
591. 20:35with it
592. 20:37and i will draw your attention to that
593. 20:39later on in the semester as we look at
594. 20:40different models of the macro economy
595. 20:44so there we are a brief introduction to
596. 20:47economics scarcity the difference
597. 20:50between micro and macro
598. 20:52and what we mean when we talk about
599. 20:53models regarding emojis i mean i mean
600. 20:55what we mean about
601. 20:56about models in general i'll see you in
602. 20:59the next video